The final commissioner serving on the Public Utility Commission of Texas will step down once his replacement is found. Texas Gov. Greg Abbott asked for Arthur D'Andrea's resignationTuesday after Texas Monthly obtained tape of a phone call in which he tells investors he would fight to protect profits power plants made during last month’s blackouts.
But in the 48-minute conversation, there is more than just talk about repricing. Below, find a few of the many interesting details D'Andrea, the chairman of the PUC, saw fit to share with investors on a call hosted by Bank of America.
Falling Trees Made Austin Energy Money?
It’s no secret that Austin Energy made a lot of money selling power to the the rest of the state during and after the blackouts. In many ways, the utility appears to have had no other choice. The Electric Reliability Council of Texas mandated that it cut power to its own customers, but it still had electricity to sell and it did to the tune of $54 million.
In his conversation, D’Andrea talks about the public relations problem faced by utilities in that position: They don’t want to appear to have gained while others suffered. Austin Energy's own customers were without electricity, but it was not in the utility's power to end the mandated blackouts.
“Everyone who made a lot of money is keeping their heads low and Austin Energy’s head is very low right now,” he says with a chuckle. “I think they were very long going into this, and I think they had a bunch of outages due to fallen trees on distribution lines so the demand, the load, they had to serve was very low.”
The reference to "long" means Austin Energy had a good hedging financial strategy. He also seems to be speculating that a lot of electricity Austin Energy was producing could not make it to ratepayers because of downed trees; therefore, it could be sold on the grid.
If that’s the case, it’s likely he's talking about the period after ERCOT lifted mandated blackouts but while the wholesale price of electricity was still allowed to sell at its price cap of $9,000.
KUT asked Austin Energy about the role fallen trees might have played in its electricity sales, but it did not respond before publication.
Some Customers Can Expect To Be ‘Frog Boiled’
In the phone call, D’Andrea also shares a lot of information about the deregulated parts of Texas, where private companies sell electricity. These companies are often called retail electric providers, or REPs. He tells the investors he assumes many of these companies will not get a bailout from the state and will either go bankrupt or be bought up by larger companies
“A lot of them are going to be partially owned by Shell now,” he says. “It’s tough because if you take on $200 million in debt, you really have to do some kind of frog boil to get that back from your customers.”
What he means is that in order to recoup losses, retail providers will need to increase the cost of their electricity to customers. But they need to do it so slowly that customers don’t notice or they’ll go to a different provider. It’s a reference to the old myth about boiling a frog slowly.
“If you raise your rates too fast, you know, they’ll just switch to some other plan,” he says. “I know there’s REPs getting stood up right now with some big financial backing” that are going after the customers of electric companies that are in debt.
It’s The Gas, Stupid
So far, a lot of people have been talking about what D’Andrea told the investors. But what about what they were asking him? Among other things, it’s clear they were worried the state may intervene in the natural gas market.
Over and over, the Bank of America analyst hosting the event, Julien Dumoulin-Smith, asks D’Andrea if lawmakers might try to reprice natural gas. D’Andrea says no, but promises to let the analyst know if he hears more.
Dumoulin-Smith also comments on Texas Attorney General Ken Paxton “making this noise,” in reference to an investigation into market manipulation by natural gas producers. Gas and electricity are inextricably linked, Dumoulin-Smith points out.
Securities analysts are not the only people talking about the role gas played in the blackout. Ever since the blackout, grid experts and energy analysts have been saying you can’t solve Texas grid problems without looking at natural gas regulation and performance.
And, in the phone conversation, D’Andrea agrees.
“The failure here was really a larger statewide failure in our gas supply system,” he says. “It’s on me. It’s on the Railroad Commission. That’s who should have been seeing that — ‘Hey, when it gets down to 9 degrees … we’re going lose all this stuff.'”
The Railroad Commission of Texas is the state’s oil and gas regulator. D'Andrea is suggesting he and the commission should have understood that freezing weather was going to cut the state's gas supply, which would then reduce the power supply.
The Railroad Commission has, so far, escaped a lot of scrutinylawmakers have given to other agencies. And because its commissioners are elected statewide, the governor can't ask them to resign.
You can listen to the full conversation over at Texas Monthly. There’s plenty more to talk about.
